March 20/Dec 20 Corn: This spread has bounced 8 to 9 cents from last weeks lows and maybe poised for a further run. Farmers are starting to report their initial yield results and they are mixed/variable. Its far too early for any real US yield trends, and of course, their reported yield findings to NASS are always questioned, especially this year. Buying this spread at 25 to 22 March 20 under with a new low stop at 32 cents March 20 under is a conservative bet in my view. There is still time for a myriad of factors to enter into the market that would rally corn in the weeks and months to come. On the flip side weather has been ideal, as warm growing days for this late planted crop has been met with enough precipitation in most areas. More importantly no frost/freeze has emerged. The market has seemed to have priced in the Two Billion bushel carry-out and any variances could result in lower stocks instead of higher. Buy at 25 to 22 cents March under with a stop at 32.Chart below.
Dec 19 KC Wheat vs Dec 19 Chicago Wheat: In my opinion there hasn’t been an abnormal relationship like this one on the grain board this year than this spread. We closed June with this spread at 54 cents KC under Chicago. The duration of the third quarter has seen this spread move to 85 cents KC under, a loss of more than 50 percent for the quarter. Monthly and Quarterly continuous charts are deeply oversold. From that standpoint alone and given we are approaching month and quarter end, we may see profit taking soon. We have bounced a whopping six cents from recent lows. I’ve been long and wrong on this spread earlier this year. The lessons learned prior have told me to use a tight stop loss if I Buy KC vs Chicago wheat. When I have had leads on the trade, going long the spread, I have previously moved my stop loss to at or near break even. Chicago wheat has meat on the bone in my view, trading just shy of 5.00 spot futures, and has strengthened vs corn, KC, and Minneapolis wheat. Hard Red producers in Nebraska and Kansas have told me that basis levels are 65 cents under the July 20 KC futures. At these levels they say its a loss to harvest KC next year if prices can’t rally. From a fundamental standpoint we could see an eventual increase of seeding of soft red and decrease of hard red winter or the KC contract. Buy at 82 to 79 cents KC under, with a stop loss at 87 cents. See Chart
Dec Chicago wheat vs Dec Corn: There is nothing in this chart below that tells me to sell Chicago wheat vs Corn. Dec wheat over Corn has rallied from 67 cents wheat over to last weeks high at 1.24. The market has found buyers on each dip since early August at 72 cents, 90 cents, and just this past Monday at 1.10. All signs point to eventual rally to 1.40 wheat over corn, if the spread can settle over 1.24 in my opinion. As previously mentioned corn could have several reasons to rally. One reason being that China’s Ag Ministry has pegged China’s corn reserves at 56 million metric tons following massive reserve sales in recent years. Reserve selling has kept Dalian corn futures capped at $7/Bu. This news entered into the market this week but so far the market has shrugged it off. As if to say prove it, lets see them actually buying from the US or lets see basis levels firm and move higher in South America. I have no recommendation here other than to let the charts guide any entries and exits. A close over 1.24 could push the spreads to 1.40. A close under 1.12 and the spread could retest 1.02 and then 90 cents wheat over corn. Please keep in mind that there is a stocks in all positions report at month end. We have seen major surprises in my view from the USDA this year. Use appropriate stop loss orders given your risk aversion especially into these gov’t reports.
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